The Third Circuit recently issued a decision holding that putative class members can benefit from equitable tolling even before a district court decides a motion for class certification. Aly v. Valeant Pharms. Int’l. Inc., No. 19-3326, __ F.3d __ (3d Cir. June 16, 2021).
The decision addresses a class action doctrine known as “American Pipe” tolling. Under American Pipe & Construction Company v. Utah, 414 U.S. 538 (1974), for which the doctrine is named, the statute of limitations for claims by putative class members is tolled from the time a putative class action complaint is filed until a class certification decision. The doctrine serves important policy goals. Without the rule, for example, putative class members would be forced to intervene or file their own claims while awaiting a decision on class certification in order to satisfy the statute of limitations. American Pipe, therefore, preserves the right for putative class members to file a timely complaint after class certification is denied while avoiding a multiplicity of lawsuits pending a class certification decision.
The Supreme Court has elaborated on the American Pipe doctrine in subsequent cases to clarify that tolling applies to separate lawsuits, not just motions to intervene, see Crown, Cork & Seal Co., 462 U.S. 345 (1983); that tolling only applies to statutes of limitations, not statutes of repose, see Cal. Public Employees’ Retirement System v. ANZ Securities, Inc., 137 S. Ct. 2042 (2017); and that tolling only applies to individual, rather than class, complaints, see China Agritech, Inc. v. Resh, 138 S. Ct. 1800 (2018).
But the Supreme Court has not yet addressed the issue before the Third Circuit in Aly. There, the issue was whether American Pipe tolling applies to individual lawsuits filed before a decision on a motion for class certification. In Aly, the operative class action was timely filed in June 2016, alleging claims under the Securities Exchange Act and Rule 10b-5, both of which have a two-year statute of limitations. In December 2018, before a decision on class certification but after the two-year statute of limitations expired, the Aly plaintiff filed individual claims under the Securities Exchange Act and Rule 10b-5. The defendant argued those claims were time-barred. The district court agreed, reasoning that allowing untimely individual suits before a class certification decision would encourage the multiplicity of suits that American Pipe was intended to avoid.
The Third Circuit vacated the dismissal and remanded the case to the district court, holding that an individual claim filed before a class certification decision is entitled to American Pipe tolling. The court’s principal reasoning recognized that “[t]olling was primarily intended to benefit putative or unidentified members of the class, who are considered ‘mere passive beneficiaries of the action brought [on] their behalf.’” Aly, __ F.3d __ (slip op. at p. 20) (quoting American Pipe, 414 U.S. at 552).
The Third Circuit identified additional support for its holding. First, the court explained that its holding is “consistent with the function of limitations periods generally,” which is to prevent stale claims from being litigated to a defendant’s detriment. Id. at 21. Namely, because the defendant had already been defending a class action involving similar claims since 2016, it would not be prejudiced if the individual suit proceeded. Second, the court explained that its holding promotes efficiency by allowing putative class members to file their individual claims when it becomes efficient to do so, rather than “locking” those members into a class action that, in their judgment, is not valuable or not likely to succeed. Id. at 22.
The court described its holding as a “straightforward application” of the principle that “American Pipe tolling begins, for all putative members, when the class action is commenced.” Id. at 27. And, in a footnote, the court dispelled concerns that its holding would lead to an increase in litigation, noting that “[m]embers who file individual claims before certification are likely the same members who—if forced to wait until after certification—would have opted out regardless.” See id. at 25 n.64. Thus, although the Third Circuit’s opinion emphasized the underlying equitable goals of American Pipe tolling, it is not likely to have a significant impact on the number of individual claims filed during a class action.